Last year, the U.S. Department of Labor (DOL) proposed rules to increase the salary level for employees exempt from overtime under the Fair Labor Standards Act (FLSA). The proposed rules sought to increase the salary level for "white collar" exemptions to the 40th percentile of earnings for all full-time salaried workers, and to the 90th percentile of annual wages of all full-time salaried workers for highly compensation employees. After receiving more than 250,000 comments, primarily from employers who believed that the changes should be delayed in order to give businesses adequate time to adjust, the DOL finalized the Rules and submitted them to the Office of Management and Budget (OMB) late last month. The Rules are expected to be expedited through the OMB's approval process.

So, what do we know about the Rules and how they will affect employers? Here is what we know for sure:

  • The minimum salary threshold for exempt "white collar" employees will increase significantly. Currently, employees earning $455 per week, or $23,600 annually, satisfy the salary threshold for overtime exemption. The Rule seeks to possibly double those figures, and the DOL is considering an increase up to $970 per week, or $50,440 annually, which will significantly increase the number of employees eligible for overtime. Under those figures, the DOL estimates that 5 million currently exempt employees will become eligible for overtime. It should be noted that after an outcry from employers, the DOL indicated that it was considering a figure under $50,000.
  • The minimum salary threshold for exempt, highly compensated employees will increase significantly. The minimum salary for exempt, highly compensated employees will increase from $100,000 to $122,148.
  • The salary threshold will automatically increase. For the first time ever, the DOL is seeking to tie the salary threshold to an automatic escalator in order to keep pace with inflation.
  • The DOL has indicated an interested in revising the "duties" test, and including nondiscretionary bonuses and incentive payments toward a portion of the salary level test. Although the proposed Rules do not include a change to the "duties" test and do not mention the inclusion of nondiscretionary bonuses and incentive payments in the salary level test, the DOL did request comments.

Clearly, the implications of these changes to the Rules are vast, particularly for employers. But it is not time to panic yet. Once the Rules are approved by the OMB, which could happen within the next few weeks, employers will have some time to come into compliance as they are not expected to take effect until September, at the earliest. Now is the time, however, for employers to begin an assessment of their workforce and make any necessary changes to come into compliance with the new Rules. At a minimum, every employer should take the next few months to:

  1. Review employee classifications and job descriptions for revisions that need to be made based upon the new salary thresholds.
  2. Audit timekeeping systems to ensure compliance with overtime requirements.
  3. Convert and educate employees who will no longer be exempt from overtime to hourly employees.

The most important thing for businesses to remember is to be proactive in complying with the new Rules. These changes apply to businesses both large and small, so it is wise for businesses of all sizes to evaluate their organization sooner rather than later to ensure compliance once the Rules take effect – and before it is too late.